What you need to open a brokerage account for a child

A brokerage account for a child requires an adult to open it and manage it until the child reaches the age of majority (18 or 21, depending on your state). The account is held in the child's name, but you control the investments and withdrawals. You will need the child's Social Security number, proof of your identity, and proof of your address. Most brokerages also require you to link a bank account for deposits and withdrawals.

The two main account types are custodial accounts (also called UTMA or UGMA accounts, depending on your state) and 529 college savings plans. Custodial accounts have no restrictions on how the money is used once the child reaches adulthood. 529 plans are designed for education expenses and offer tax advantages, but withdrawals for non-education purposes trigger taxes and penalties. Choose based on whether you want to restrict the money's purpose or leave it open-ended.

Opening takes 10 to 20 minutes online with most brokerages. You will answer questions about your income, employment, and investment experience. The brokerage will verify your identity electronically, and you should receive confirmation within one business day. Some brokerages mail a physical card or documents; others operate entirely online.

Key Takeaways

  • Custodial accounts let you invest money in your child's name with no restrictions on how they use it after age 18 or 21, while 529 plans offer tax breaks for education but penalize non-education withdrawals.
  • You will need your child's Social Security number, your government ID, proof of address, and a linked bank account to complete the setup.
  • Most brokerages complete the verification process within one business day and let you start investing immediately online.
  • Custodial accounts trigger "kiddie tax" rules that tax the child's investment income at your rate if the child is under 18 and earns above a threshold (currently around $1,300 per year).
  • Once the child reaches age 18 or 21, the account transfers to their full control and they can withdraw or spend the money however they choose.

Custodial accounts versus 529 plans

A custodial account (UTMA in most states, UGMA in a few) is a straightforward brokerage account in your child's name. You choose the investments, make deposits, and manage everything until the child turns 18 or 21. At that point, the account becomes theirs entirely—they can withdraw all the money, change the investments, or leave it alone. There are no restrictions on what the money can be used for. This flexibility makes custodial accounts useful for any savings goal: a car, college, a house down payment, or anything else.

A 529 college savings plan is a tax-advantaged account designed specifically for education. Money grows tax-free, and withdrawals for may have access to education expenses (tuition, room and board, books, computers) are not taxed. If you withdraw money for non-education purposes, you pay income tax on the earnings plus a 10% penalty. This makes 529 plans powerful for education but restrictive for other goals. Some states also offer state income tax deductions for 529 contributions, which can be substantial.

If you are certain the money will go toward college or trade school, a 529 plan usually saves more in taxes. If you want flexibility or the money might be used for other purposes, a custodial account is simpler. You can also open both: a 529 for education savings and a custodial account for other goals.

Step-by-step: opening a custodial account online

Start by choosing a brokerage. Major brokerages that offer custodial accounts include Fidelity, Schwab, Vanguard, E-Trade, and Merrill Edge. Visit the brokerage's website and look for "open an account" or "custodial account." You will be asked whether you want a custodial account or a 529 plan; select custodial.

Fill in your personal information: your full name, date of birth, Social Security number, address, phone number, and email. Then enter your child's full name, date of birth, and Social Security number. The brokerage will ask about your employment, income range, and investment experience. Answer honestly; these questions help the brokerage comply with regulations, not determine whether you can open the account.

Link a bank account for deposits. Provide your bank's routing number and your account number. The brokerage will make two small test deposits (usually under $1 each) to verify the account is real; you will confirm those amounts in a follow-up step. Once verified, you can transfer money from that bank account to the brokerage account.

Review and sign the account agreement electronically. The brokerage will verify your identity using information from credit bureaus or by asking security questions. Once verification is complete (usually within one business day), you can log in and start investing. Some brokerages let you invest immediately while verification is still in progress; others wait until it is finished.

Opening a 529 plan for education savings

Most 529 plans are run by individual states, though you do not have to live in a state to use its plan. Some brokerages (Fidelity, Schwab, Vanguard) also offer 529 plans. Start by researching your state's plan on its website or through a comparison site like SavingForCollege.com. Look at the investment options, fees, and whether your state offers an income tax deduction for contributions.

The opening process is similar to a custodial account: you provide your information, your child's information, link a bank account, and verify your identity. Most 529 plans are set up entirely online and take 15 to 30 minutes. You choose from a menu of investment portfolios (usually age-based options that shift from stocks to bonds as the child gets older, or static portfolios you pick yourself).

Once the account is open, you can set up automatic monthly transfers from your bank account, make one-time contributions, or both. Some plans allow contributions up to $235,000 per child (the limit varies by state and plan). Money grows tax-free and can be withdrawn tax-free for may have access to education expenses at any college, university, trade school, or apprenticeship program in the country.

Tax rules and "kiddie tax"

Investment income in a custodial account is taxed to the child, not to you. However, the "kiddie tax" rule applies if your child is under 18 (or under 24 if they are a full-time student and do not have earned income). If the child's unearned income (dividends, interest, capital gains) exceeds a threshold—currently around $1,300 per year—the excess is taxed at your tax rate, not the child's lower rate. This means the tax advantage of putting money in the child's name is limited until they are older.

529 plans have no kiddie tax issue because the money is not taxed at all while it grows, and withdrawals for education are tax-free. If you withdraw money for non-education purposes, you pay income tax on the earnings (at your rate) plus a 10% penalty, but the contribution itself is never taxed.

You do not file taxes on the child's behalf unless their income exceeds the filing threshold (currently around $13,850 for a dependent child with only unearned income). If the child has investment income, you may need to file a return for them or include the income on your own return. A tax professional can advise based on your specific situation.

What happens when the child turns 18 or 21

In a custodial account, the account automatically transfers to the child's full control when they reach the age of majority in your state (18 in most states, 21 in a few). You lose all control at that point. The child can withdraw all the money, change the investments, or do anything else they want with it. This is why it is important to discuss the account's purpose with your child as they get older and to consider whether they are ready for that responsibility.

In a 529 plan, the account does not automatically transfer. You remain the account owner and can continue to manage it. However, if the child does not use all the money for education, you will need to decide what to do with the remainder. You can transfer unused funds to another family member's 529 plan, withdraw the money (paying taxes and penalties on the earnings), or leave it in the account for graduate school or other education expenses.

Some states allow 529 funds to be rolled into a Roth IRA for the beneficiary, a relatively new option that lets education savings become retirement savings if they are not used for college. The rules are complex and vary by state, so check with your plan administrator if this interests you.

Common mistakes and how to avoid them

Opening the account in your name instead of the child's name defeats the purpose. The money will be part of your estate and subject to your taxes. Always open a custodial or 529 account in the child's name, with you as the custodian or account owner.

Forgetting to link a bank account or verify your identity will delay your first deposit. Complete the verification step as soon as the brokerage prompts you, even if it means waiting a day or two. Once verified, you can deposit money immediately.

Choosing investments that are too aggressive or too conservative is common. Age-based 529 portfolios handle this automatically by shifting from stocks to bonds as the child gets older. For custodial accounts, consider a simple portfolio of low-cost index funds that matches your timeline. If the money will be used in 5 years, lean toward bonds; if it is 15+ years away, stocks are usually appropriate.

Not discussing the account with your child is a missed opportunity. As they get older, explain what the money is for, how investments work, and what will happen when they turn 18 or 21. This builds financial literacy and sets expectations.

Frequently Asked Questions

Can I open a brokerage account for a child without their Social Security number?

No. The brokerage needs the child's Social Security number to report investment income to the IRS and to comply with anti-money-laundering rules. If your child does not have a Social Security number yet, you can obtain one through the Social Security Administration website or your local office. The process takes a few weeks.

What is the minimum amount I need to deposit to open the account?

Most brokerages have no minimum to open a custodial or 529 account. However, some investment options (like certain mutual funds) may have minimums of $500 to $3,000. You can open the account with $0 and deposit money later, or start with whatever amount you have available. Check the brokerage's website for specific minimums.

Can I change my mind and close the account?

Yes. You can close a custodial account at any time and withdraw the money. For a 529 plan, you can withdraw your contributions anytime without penalty, but withdrawing earnings triggers taxes and a 10% penalty unless the money is used for education or rolled into another family member's 529 plan.

What if I want to add money from relatives, like grandparents?

Relatives can contribute to a custodial account or 529 plan by transferring money to your account and asking you to deposit it, or by opening their own custodial account for the same child (each person can have their own). For 529 plans, some allow other people to contribute directly through the plan's website. Check with your brokerage or plan administrator about the process. There are no tax consequences for the child or relatives unless contributions exceed annual gift tax limits (currently $18,000 per person per year), but the brokerage will not enforce this—it is your responsibility to track.

Can I invest in individual stocks, or should I stick to funds?

You can do either. Individual stocks offer more control but require more research and monitoring. Low-cost index funds or target-date funds are simpler and often outperform individual stock picks over time, especially for long-term accounts. For a child's account, funds are usually the better choice because they are diversified and require less active management.